What are Double Tops and Double Bottoms?
The Double Tops and Double Bottoms are reversal formations in a forex chart. They are used to determine when a trend reversal is about to start.
A Double Top occurs when an upward trend is about to reverse into a downward trend.
On the other hand, a Double Bottom occurs when a downward trend is starting a reversal to an upward trend.
How to Trade Double Top (M)
The Double Top chart pattern occurs after an extended period of upward movement. A “top” forms when the prices reach the highest point they can go before finding resistance.
When this point is reached, the prices come down shortly before going back to the top again. The prices then meet the same resistance and start going down. This forms two tops as shown below, and this is what we call the Double Top formation or an M as it imitates the shape of letter M.
From the figure above, the Double Tops are shown by the Red circles. The lowest point where the prices reach before going back to retest the resistance for the second time is called the Neckline as shown by the white line.
To trade double tops in forex, you should enter just below the neckline and take profit in the next major support level.
How to Trade Double Bottom (W)
The Double Bottom chart formation occurs when the prices go down to a low level in a downtrend. When prices reach this level they meet a strong support and bounce off. They go up shortly and then go back to retest the support.
If the prices fail to break out of support for the second time, it forms the Double Bottom (W) chart formation as shown below. This is sometimes referred to as W because it forms the shape of a W.
From the figure above, a trader can place a trade just above the neckline and target Take Profit 1. Massive Pip Win.
Good luck trading Double Tops and Double Bottoms.
